JAKARTA, March 14 Indonesia may restrict
subsidised fuel use by private vehicles in major cities but will
only raise fuel prices as a last resort, the government said on
Thursday, as Southeast Asia's largest economy struggles to
contain ballooning fuel spending.
Indonesia has long been under pressure to reduce its fuel
subsidies, which cut deeply into public finances. But raising
fuel prices is considered politically toxic ahead of elections
due next year, especially after price increases in 2005 and 2008
The government's hefty subsidy bill cost $22 billion last
year and contributed to a $24.2 billion current account deficit
because of the need to import oil.
That amount was 54 percent over budget, and without tighter
controls this year's subsidy consumption is again expected to go
over, sapping funds needed for infrastructure and other
An increase in domestic fuel prices would offer relief to
markets but could also boost short-term inflation, which topped
5 percent in February, a 20-month high. It also would face
resistance in a country where nearly half of the population is
in poverty according to World Bank statistics.
"Subsidised fuel is not reaching its target recipients, but
there's been an order from the president not to increase fuel
prices," Energy Minister Jero Wacik said after a cabinet meeting
with President Susilo Bambang Yudhoyono.
Indonesia was considering three options to reduce its
subsidy bill, Finance Minister Agus Martowardojo said.
The first of these would be to "stop (subsidised fuel) use
by private vehicles", he said, adding that the government was
considering carrying out the plan in five major cities.
"If that's not effective, of course, we have the option to
cut spending or go ahead and adjust fuel prices," he said.
This year, Indonesia expects to consume between 46 million
and 53 million kl (12-14 billion gallons) of subsidised fuel,
compared with 40 million kl (11 billion gallons) in 2012.
"It's difficult. If it were easy, we'd just increase fuel
prices," National Economic Committee Chairman Chairul Tanjung
said after the meeting, adding that the government would make a
clearer announcement on its plans on March 28.
Previous attempts to increase fuel prices resulted in
demonstrations and were rejected by parliament shortly after
they were proposed early in 2012.
"If we increased them by, say, 1,500 to 2,000 rupiah, rich
people would continue to be subsidised, but poor people's lives
would become more difficult because prices would go up but their
income would stay the same," Tanjung said.
So far, programmes to limit subsidised fuel use have
focussed on government and corporate vehicles and have had
limited impact on spending.
(Reporting by Jakarta bureau; Writing by Fergus Jensen; Editing
by Jason Szep)